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Brent’s bounce helps loonie climb off lows

Keep an eye on the Canadian dollar as the week draws to a close and the central bank’s monetary policy decision looms on May 24.

Canadian inflation data for April and retail sales numbers for March are due for release on Friday.

Royal Bank of Canada forecasts that annual consumer price inflation will be up from 1.6 per cent in March to 1.8 per cent. RBC expects consumers to have increased spending by 0.3 per cent month on month, rebounding from a 0.6 per cent contraction.

Can these reports help to extend the loonie’s mild rally of the past several sessions?

The currency hit C$1.3793 per dollar at the start of May, it weakest since February 2016, amid worries about increased trade protectionism out of Washington.

The loonie’s trough came around the time the Trump administration slapped tariffs on Canadian lumber.

Weaker oil prices also took their toll. Crude is an important export for Canada and the three-month rolling correlation between the loonie and oil this week touched 0.75, its highest since September, according to Reuters.

Brent crude’s latest bounce, on a pledge by Russia and Saudi Arabia to extend production cuts, has thus contributed to the loonie’s climb off its lows.

Market positioning may be helping, too. Data from the US Commodity Futures Trading Commission shows speculators are net short 86,215 loonie futures contracts. That is already the most bearish stance on record.

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